BUY, BUILD, OR FRANCHISE?
Choosing the right way to go into business
“What will we do after we’ve graduate from university? Do you want to be a worker or make some work called business?” This question was asked by Mr.Burang Riyadi to know about our planning in the future. This week, we learned about franchise and how to make a franchise. If you want to become an entrepreneur there are some ways to do. Entrepreneur” is a term we hear a lot when someone decides to go into business. But what is an entrepreneur? One tongue-in-cheek definition is "a person who will work 16 hours a day to keep from working eight hours for someone else." There are three main ways to get into business: purchase a franchise, buy an existing business or start from scratch. Each has its pros and cons.
Purchase a Franchise
When buying a franchise, what do you get from the franchiser? This is obvious with the well-known ones, such as the fast food chains. They usually offer extensive training, advertising and ongoing management assistance. The disadvantage is the cost of purchasing this type of franchise. But if you are not getting this type of extensive help, can you justify the fee for the lesser-known franchiser that provides little or no assistance? Is it really worth the price? Adding tens of thousands of dollars expense and perhaps a percentage of ongoing sales may make the venture more difficult to finance and achieve a desirable cash flow.
Purchasing an existing business
Many times the asking price for a business is greater than the actual value of the assets being purchased. This makes financing more difficult because there are not enough tangible assets to secure the loan. Additional secured assets may be required if this is the case. Another obstacle is when the income shown for the business from tax returns and/or financial statements is not large enough to show the ability to repay the loan. A possible advantage of buying an existing business is the name recognition may contribute to the success of the business. Be sure the business has a good reputation. Always learn why the seller wants to sell the business, especially if the business has been successful. Also secure a non-compete agreement from the seller. Another area to look closely at is the inventory of the business you are buying. Don't get stuck with obsolete or slow-moving inventory.
Many times the asking price for a business is greater than the actual value of the assets being purchased. This makes financing more difficult because there are not enough tangible assets to secure the loan. Additional secured assets may be required if this is the case. Another obstacle is when the income shown for the business from tax returns and/or financial statements is not large enough to show the ability to repay the loan. A possible advantage of buying an existing business is the name recognition may contribute to the success of the business. Be sure the business has a good reputation. Always learn why the seller wants to sell the business, especially if the business has been successful. Also secure a non-compete agreement from the seller. Another area to look closely at is the inventory of the business you are buying. Don't get stuck with obsolete or slow-moving inventory.
Starting from scratch
The advantage of starting a new business is that most of the time you do not have problems with reputation that the franchise business or existing business may have developed. The disadvantage may be the financing. Normally, lenders are unsure of a new business that has no track record. This can be overcome with help from friends and family and using more of your personal assets to secure the loan. Business startups that are considered to be unusual are more difficult to finance than more established types of businesses. You may have heard that grants and special financing are available for entrepreneurs—especially for minorities. You will be disappointed to learn that isn't necessarily so, except in rare cases. If you want to go into business for yourself, be sure to look at the numbers first. Will sufficient cash flow be easily achieved or will it be difficult? Just as important, will the business provide the desired return on your investment? Going into business for yourself is a gamble. But weigh what you have to gain against what you have to lose.
The advantage of starting a new business is that most of the time you do not have problems with reputation that the franchise business or existing business may have developed. The disadvantage may be the financing. Normally, lenders are unsure of a new business that has no track record. This can be overcome with help from friends and family and using more of your personal assets to secure the loan. Business startups that are considered to be unusual are more difficult to finance than more established types of businesses. You may have heard that grants and special financing are available for entrepreneurs—especially for minorities. You will be disappointed to learn that isn't necessarily so, except in rare cases. If you want to go into business for yourself, be sure to look at the numbers first. Will sufficient cash flow be easily achieved or will it be difficult? Just as important, will the business provide the desired return on your investment? Going into business for yourself is a gamble. But weigh what you have to gain against what you have to lose.
So it depends on you, what you will do to become an entrepreneur. Do you want to starting from scratch, buying a business or join in franchise? Maybe many people often asked why anyone should buy a franchise. You have to pay fees for a license, attend training courses, sign an agreement the length of a small novel and then start a business that doesn't even have your own name on it. For many people, this seems all too complicated for what are essentially ephemeral advantages. Sure, you could be getting the "secret recipe" or the inside look at a new and exciting product line, but on the whole franchising lives in the day-to-day world of business. If you are beginner in business, I think it’s better to join some franchise. Like Mr.Burang said that joining some franchise is more safety than another choice. Because in franchise, you will get the success tips from your franchisor, transfer knowledge, business strategy, training, and another experience from your franchisor, so you must not start from nol.
A good franchise company can help you through the issues that are important, teach you the core business principles and assist you along the way. Can you do it yourself? The answer is obviously yes. Millions have and this continent was built on their efforts. The point that has to be made, however, is that for every person, who succeeded on his/her own, many have not. The franchise company should offer you brand-name recognition in the marketplace. This is done through the continual promotion of the company and its products through various media opportunities. By developing a brand name in every area, a major asset is created. When people think of your company when they are thinking of a product or service, you have a huge advantage in the marketplace. This responsibility is jointly shared between the franchisee and the franchiser. The franchisee is needed to promote the name locally, while the franchiser promotes the name nationally.
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